Syed, Author at The Broke Professional - Page 3 of 21

Refinance Sooner Rather Than Later

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Paying off student loans is a battle.  It’s a battle fought against multiple enemies while running a marathon.  Sounds difficult, but it takes consistent work and sacrifice for new professionals to become debt free.

In any battle, you need a good strategy and weapons.  Ideally, Matrix amount of weapons:

One weapon I should have used sooner is student loan refinancing.  In my case, it saved me a lot of money.  And if you have a nice chunk of student debt, it can save you a lot of money too.

How much?  Let’s take a look.

Simple case study

Let’s look at the case of a medical school graduate with a run of the mill $100,000 of student loan debt.  To keep things simple let’s assume this is one giant loan with an interest rate of 7% and a 25 year payoff.

And let’s also assume this particular graduate is a big spender and has no extra money to put towards student loan payments.  (I’m going to have a talk with him later about priorities)

With help from this handy student loan calculator, here’s how much this graduate will owe with these initial terms:

Original loan: $100,000

Interest rate: 7%

Minimum monthly payment: $706.78

Total interest paid: $112,033.35

This doc would have to pay a total of $212,033.35 on a $100,000 loan!  That’s one expensive education.  He would have to shell out over $700 every month for 25 years.  That does not sound like a good time.

Now let’s see how he would have fared if the student loan was refinanced at a lower rate of 4.5%, which is pretty average nowadays for a fixed rate according to SoFi:

Original loan: $100,000

Interest rate: 4.5%

Minimum monthly payment: $555.83

Total interest paid: $66,750.38

Through a simple student loan refinance, our doctor lowered his monthly payment by over $150 and reduced his total interest payments by more than $45,000!

Why in the world would anybody not want to take this deal????!!!!

Even if you’re eligible for a government program like income based repayment, these types of programs will almost always have you paying more in total interest payments.  I would much rather get my student loans refinanced to the lowest interest rate possible and then pay them off quick.

Very Easy Process

I graduated optometry school in 2009.  Doesn’t seem like a long time ago, but when it comes to student loan refinancing, it’s an eternity!  There were very few companies around and the process usually required physical paperwork.  Smartphones were not even a big deal back then so that should tell you something.

Today, there are so many companies that will refinance your student loans.  I continue to get emails and letters from these companies.  And many of these companies are very good.

There are two companies in particular who I feel are the best.  They are SoFi and Earnest.

I have personally refinanced student loans with both of these companies and they are listed #1 and #2 on the popular comparison website Magnify Money.

Refinancing with these companies is done completely online and is very streamlined and simple.  I walk you through the experience in a previous post here.  It’s easy enough to open an account and poke around just to see how easy the process really is.

Honestly, unless you’re getting total student loan forgiveness, there is no reason anyone with student debt should forgo the refinancing option.  It costs nothing to get some quotes and more likely than not, you will find an option to lower your interest rate.

Conclusion

Paying off student loans isn’t complicated.  Consolidate your loans if that makes sense from an interest rate point of view.  If not, pay off your highest interest rate loan with reckless abandon while paying the minimum payments on the rest.  Then move on to the next highest rate loan.  Rinse and repeat.

To make this easy process even more effective, refinance your high rate loans.  This will accelerate your loan payoff process and get you debt free even quicker.

Getting your student loans refinanced early in your career will provide the most bang for your buck.  This is the time your balance will be highest which means higher potential interest payments.

Being debt free requires resilience and consistency.  And a little help from others never hurt:

Check out your rate with SoFi.  You will receive a $100 bonus if approved for a refinance.

Also, check out Earnest.  You will receive a $200 bonus if you are approved for a student loan refinance.

My advice is to get a quote from both companies and see what the best deal would be.  Both companies use different underwriting methods so you don’t know what you can get unless you try!

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3 Things New Professionals Need to Know About Taxes

My note:  The following is a gracious guest post from Kathryn, who has an excellent blog called Making Your Money Matter.  If you want a complete financial lesson on any and every financial topic from an actual financial professional, head on over to her website.  Honestly, this is the type of information that I’ve seen only available in paid courses, but you can get everything on her site free and clear.

Without further ado, here is a fantastic post by Kathryn talking about some essential tax tips for professionals.

Kathryn Hanna is a CPA and specialized in business and personal taxes when she worked in public accounting.  She currently stays home with her 3 children and blogs at www.makingyourmoneymatter.com to help people improve their understanding of personal finance and thereby improve their lives.  She loves all things money and especially spreadsheets.

If the only sure things in life are death and taxes, I’m sure we can all concur that it’s more fun to talk about taxes than death.  The basic formula for taxes is really quite simple, it’s just the fact that there are so many exceptions and rules that make it incredibly complicated.  Fortunately, you don’t have to know all the rules, just the ones that you need for your own personal taxes!

There are 3 things that I believe will be most beneficial for every new (or even not so new!) professional to know related to taxes.  These are things that will help you reduce taxes and build as much wealth as possible.

1. TAXES MAY BE YOUR SINGLE LARGEST EXPENSE

Once you’ve gotten used to the huge chunk of money being taken out of your paycheck for taxes, you might just ignore taxes altogether (at least until April each year!).  However, FICA, federal and state taxes alone will likely be upwards of 15-20% of your pay.  I calculated my total taxes as a percentage of my income for 2016 and found that over 25% of my income goes toward various types of taxes.  This is my largest expense, exceeding my total housing expenses including utilities!  Likely, taxes just might be your largest expense as well!

While I acknowledge the importance of tax funds to keep our country running, I’m all about minimizing my taxes to not have to pay more than my legal share.  By learning more about how taxes impact various decisions, you can minimize your taxes and keep more of your money in your pocket.

The first step is to get a really good understanding of your current tax situation.  Go through your most recent tax return and make sure you understand, line by line, each and every income, deduction, credit, and tax calculation.  If you have any new financial situation come up, research and make sure you understand the tax consequences.

2.  ALL INCOME IS NOT CREATED EQUAL FOR TAX PURPOSES

As a new grad, you were probably super excited about having any sort of income.  A paycheck large enough to cover eating out instead of sitting at home with Ramen noodles or a tuna sandwich is life-changing.  Earning income is great!

However, that salary you are getting is the nearly the most expensive type of income there is.  First, you’ll be paying Social Security and Medicare taxes on it at a rate of 7.65%.  Then, you’ll need to pay federal income taxes on your salary likely in the range of at least 10-15% if you’re a single person just starting out.  Also, your state will want their cut of taxes, which will add another few percent (the tax rate is 4.25% in my home state of Michigan).  That’s a lot of your hard-earned money going to taxes.

The only income that is even more expensive to you than employment income is self-employment income due to having to pay twice the Social Security and Medicare taxes.  However, being self-employed can increase your income at much higher levels than working for someone else, so I’m definitely not discouraging it!

Most types of income are taxed at ordinary tax rates for federal and state purposes but are not subject to FICA taxes.  Examples of these types of income include:

  • interest income
  • short-term capital gains on investment assets held for less than a year
  • rental property income
  • retirement distributions (someday!)

There are also types of income that are not subject to FICA taxes and are also taxed at lower tax rates.  These types of income are actually taxed at a 0% rate for those in the 10-15% tax bracket (single filers up to $37,950 adjusted gross income for 2017).  Then they are taxed at only 15% for most people.  These types of income include:

  • qualified dividends
  • long-term capital gains on investment assets held for at least a year

There are even income streams that are not taxable at all for federal income tax purposes:

  • interest from municipal bonds (although this may be taxable in some states)
  • gifts, bequests, and inheritances

The moral of the story here is to increase your other income streams in addition to increasing your salary.  Taxes make a significant difference in the amount of your income that you actually keep, so increasing your portfolio income will help you get ahead in the long run.  In addition, saving money in retirement accounts will help you to defer your tax on that income for 30+ years or more.  It will make a huge difference in helping those funds grow more quickly for your future retirement.

3.  HOW TO CALCULATE YOUR MARGINAL TAX RATE

Another vital piece of knowledge is understanding your marginal tax rate.  Your marginal tax rate is the percentage of tax you will pay on your next dollar of earned income.  This is not to be confused with your effective tax rate, which is determined by dividing your total federal tax liability by your total income.

The main reason that there is often a large difference in the marginal versus effective tax rate is because the U.S. has a progressive tax system.  A progressive tax system is where the tax rates increase with higher income levels.  Those with high income are still taxed on the lower rates for the lower portion of their income.  This is shown in the tax rate brackets shown in the example below.

In addition, the difference in effective and marginal rates may also be due to a substantial amount of non-taxable income items or tax deductions and credits that decrease income.

An explanation of marginal and effective tax rates is best explained through a simple example.  Assume the following information for 2016:

  • Your annual salary is $55,000
  • You contribute $5,000 to a traditional 401(k) account
  • You have paid $1,000 in student loan interest
  • The standard deduction is $6,300
  • The personal exemption amount is $4,050

This quick tax summary shows your tax liability of $5,435 for 2016:

The effective rate you are paying on your taxes is only 9.9%, which is calculated as $5,435 in total tax divided by $55,000 gross income.

However, your marginal tax rate is 25%.  Your next dollar of income will actually be taxed at a 25% rate, assuming it doesn’t give rise to additional deductions (for example, if you contribute this “extra” money to retirement accounts, it will not be taxed currently).  The marginal tax rate is determined by looking at the highest tax bracket, as determined by your taxable income.

Looking at the tax rate table below, you can see that with a taxable income of $38,650, this would put you in the $37,650-$91,150 bracket, which is taxed at a rate of 25%.

Looking at the tax table, you can also see that you can earn an additional $52,500 in income before increasing your marginal tax rate to 28% ($91,150 less $38,650).

Understanding your marginal tax rate will give you a realistic view of how much that raise or bonus is actually going to be on a cash basis for you.  It also will hopefully encourage you to contribute more to retirement accounts as your marginal tax rate goes up and those tax deductions become worth even more.

FINAL THOUGHTS

Understanding income taxes is key to building your wealth through the years.  Because of the progressive tax structure in the Unites States, it is even more important to understand your taxes as your income grows throughout the years and the value of your tax deductions increases.

Start now by looking at your current tax situation, making a plan to increase your passive income streams and determining your marginal tax rate.  Future you will thank you!

This information is meant for educational purposes and does not represent individual tax advice.  If you have questions about your personal tax situation, it is highly recommended to meet with a tax advisor or attorney.

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What I Would Tell My College Self

If only we could go back in time…

At some point in our lives, we wish we could go back in time and give ourselves some advice.  If we performed better in some key points in life, who knows how different everything could be?

Life’s all about the journey as the saying goes, but it would be nice if I was able to tell my 20 year old self the winning lotto numbers.  Might be a more luxurious journey at least.

But I’ve watched enough movies to know that telling ourselves winning lotto numbers or sporting event results would disrupt the space time continuum.  (Back To the Future 2 anyone??!!)

So I would be content with teaching my college self a few solid life lessons.  College is a critical crossroads for many.  Make the right choices and getting your degree will most likely get you a nice job.  Drop out and start a company and you will become the next Mark Zuckerberg.

If only it were that easy.  There are a few lessons I would like to impart to my college self (geez has it been 15 years???):

Figure Out What You Want Before You Start

I didn’t really know what I wanted to do as a college freshman.  I started with a general “business” major, then Philosophy and finally settled on Biology after I decided to become an optometrist.  This was a 2 year process that should have been completed before I got into school.

I tell you, my college bound self,  decide what you want to do with your life before you start college.  That way you can have laser like focus on what classes you need to take.  Taking classes you don’t need for your degree is a waste of time and money.

It will also allow you to work on your career outside of the classroom.  You could find a mentor, look at potential graduate schools or find out how you want to live your life in your chosen career.  This is a much better use of your time than eating mediocre nachos on campus while thinking about what the heck you want to do with your life!

So figure out what you want to do early on, and make that the focus of your time at college.

Student Loans are Easy to Acquire, but Hard to be Rid of

Think about how you want to pay for college before you get in.  If student loans will be your primary tool, so be it.  Just remember that you will be able to get a LOT more money than you really need.  And that can get you in a lot of trouble once real life starts.

When you get that sweet looking award letter, don’t be fooled by all the money the school will want to give you.  You don’t need all of it no matter what the projections say.  All you have to do is sign on the dotted line and your school will benevolently give you as much money as you want.

Only it’s not your school that’s giving it.  It’s most likely the government.  And the government always gets its money back.

So make that sacrifice by eating cheap meals at home rather than eating out every day.  Try to walk or bike whenever you can instead of saddling yourself with a car payment in school.  And ask family for help.  There is no shame in using your brother’s old sofa for your living room.

Consider Refinancing As Early As Possible

College self didn’t know too much about personal finance.  During my second year of graduate school, we were informed that the interest rate on student loans will be going up from around 2% to 6%.  I thought nothing of it at the time, but those 6% loans are the ones that seem to keep hanging around after all these years.

Education is key, so learn about how loans and debt repayment work as early as possible.  Preferably before you get into school.  Along the way you will find out about refinancing, and it is a wonderful thing.

Plan to pay off your debt by paying off the highest interest loan and then moving down the list.  This will allow you to pay off your loans in the most efficient manner possible.

Consider refinancing your loans to get that interest rate down lower so you can pay the loans off even faster.  I didn’t even think about refinancing until about 5 years after school.  Dreaming of the money I could have saved makes me hate student loans even more.

Where to refinance?  Earnest is a great company to work with.  I have had a couple of loans refinanced with them and the process has been great.  They were able to cut my interest rate by a couple of points and I saved hundreds of dollars in interest payments by refinancing with them.  If your goal is to pay off your loans as quickly as possible, what’s not to like?

College is a time for discovery and growth.  It’s when students explore new horizons and find themselves.  But it would be nice if future me just found me pulled me aside and gave me the lowdown on how to prepare for life the right way.  I’m sure he would mention the wonders of student loan refinancing.

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Tax Filing Open Season Is ON!

It’s actually tax season!

People love the new year for many boring reasons.  You can lament the past year (2016 wasn’t THAT BAD.  Famous people die every year).

A new year also signifies a fresh start.  That could mean a new healthy diet or starting to break some bad habits.

But most New Years resolutions die fast, so I like the new year for a different reason.  TAX TIME!

And it’s not because I’m getting a big refund.  I try to get as small of a refund as possible.  That’s because getting a large refund means you had the government hold your earned money last year.  But that’s for another post.

I just enjoy getting tax related letters in the mail and having a nice folder at the end of February with all of my financial information from 2016.  Doesn’t get much better than that.

That being said, today is a big day for me.

January 23, 2017 is the first day the IRS will accept tax returns.  This includes paper and e-file.  And why are you still using paper??

Here are some other key dates to remember:

January 31, 2017: Date by which you should have received your W-2 from your employer.

February 16, 2017:  Financial and investment institutions must mail out their various forms, including 1099’s which report any withdrawals from retirement accounts.

April 18, 2017: Tax Day!  Last day to file federal income tax returns and any extension requests.

October 15, 2017:  Last day to file federal taxes for those who had approved extensions.

This post is simply a public service announcement for the start of tax filing.

Next week I will outline where you can get your taxes done, and how it can possibly be FREE!

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Are Physician Loans a Good Idea?

doc-house

Recent graduates of professional school are in a unique position.  They usually have high amounts of debt and low savings. Not a good recipe to buy a home.  Almost everybody with high debt and low savings will get denied for a traditional mortgage.

But one thing almost all professional school grads have is high potential income. So a number of banks offer Physician Loans (also called Doctor Loans) geared towards new professionals.  Most of these loans are geared towards MD’s.  But other health professionals, such as optometrists, can take advantage of them also.

Nuts and Bolts

I wrote about Doctor Loans in a previous post, but since I’m now a few years into having one, I wanted to revisit the subject.  Here are the key aspects of a Doctor Loan:

Pros

  • Requires little to no down payment
  • Doesn’t require Private Mortgage Insurance (PMI)
  • Doesn’t factor in student loan debt, which is usually high for professionals
  • Will accept a job offer or contract as proof of earnings

Cons

  • Available only to new grads, usually a maximum of 5-10 years out of residency or school
  • Can have higher fees and interest rates than conventional loans
  • Certain types of homes may be restricted
  • Some banks might require the customer open a checking or savings account with the bank

It’s also important to know why banks would offer a Doctor Loan.  Lenders are looking for customers who will make their payments on time and have a good relationship with the bank for years to come.  Professionals usually have high income potential, so banks want them as customers for life.  They will offer premium checking accounts and preferred rates for customers with mortgages.

My Take on Physician Loans

Now that we have the pros and cons out of the way, let me give you my opinion of the Doctor Loan.  I decided to use the Doctor Loan because we wanted a house after renting for a couple of years but didn’t have the 20% down payment needed for a conventional loan.  By not having at least 20% for a down payment I would have to pay Private Mortgage Insurance (PMI).  This is just an extra monthly payment to the bank that would not even be tax deductible in our case.

After finally finding a bank that offered Doctor Loans for optometrists, I went thorough the usual ton of paperwork required for a mortgage.  I’ve heard some horror stories from others who went through the mortgage application process, but luckily it went pretty smoothly for us.

I ended up selecting a no down payment Adjustable Rate Mortgage (ARM).  While this sounds scary on paper, I believe it was the best decision for us.  Doctor Loan interest rates are usually a little higher than conventional loans. Going with an ARM allowed me to get a rate in line with the average 30-year fixed at that time.

The interest rate on my ARM doesn’t increase until after 10 years, which is a few years longer than we plan to live in the house before selling.  Even if we end up living there a little longer than 10 years, we can still handle the maximum possible payments so it shouldn’t be an issue.

Our plan is to build up enough equity in the house to eventually get a conventional loan on our next home.  The Doctor Loan allowed us to take advantage of low current rates and have an affordable payment.  I don’t regret going with the Doctor Loan, but if we had waited a few more years to build up enough of a down payment for a conventional loan, we might have scored a lower interest rate.

No Free Lunch

Not paying PMI and not having to fork over a large down payment sounds like a good deal, but the advantages of that can be erased if you decide to sell too early or you have to settle for a high interest rate.

So are Physician Loans for everyone?  Absolutely not.  Homes are expensive (taxes, maintenance, homeowners association fees etc).  If you rush into a purchase too fast and aren’t ready for the upfront costs, then a Doctor Loan is probably not a good option.  You would be better off learning the basics of home ownership while building up enough of a down payment for a conventional loan.

Mortgage lenders essentially work like see saws.  They can offer low down payment and no PMI, but will have to increase the interest rate.  If you want a lower interest rate, you should be able to offer a good down payment and maybe even pre-pay some of the interest.

There really is no one right answer.  Deciding if a Doctor Loan is right for you depends on your income potential and how long you decide to live in the house, among other things.  Run the numbers and ask those who have been through the mortgage process to see if it would be a good option for you.

If you need some more information, here is a great overview about student loans from Ricardo at Doctor Loan USA.

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The One Service That Finally Let Me Cut Cable

Pittsburgh Steelers v Tennessee Titans

Change is tough.  Changing something I’ve been used to my entire life is especially tough.  For me, that something was cable TV.

Having “background TV” on has always been a normal thing growing up.  Though probably not the best thing to grow up around, it was what we grew up around nonetheless.  After I got married and moved out on my own, it was just assumed we would sign up for a cable package.

After all, how else would I watch basketball and football?  And how else would we be able to DVR our favorite TV shows?

It turns out that there are now tons of ways to do this.  I’ve actually previously written about the benefits of cutting cable a couple of years ago.  Despite the obvious financial and anti-commercialism benefits cutting cable would provide, I just couldn’t bring myself to do it.

My main hangup was how I was going to watch sports.  If I can’t get NFL network, ESPN or any local channels I would have to invade people’s homes who did have cable.  That’s not a way to live life.

But I’m happy to say that I did finally cut the cord a couple of months ago.  And with great results.  We’re saving money every month and only watching those things we want to.  And it was a specific service that helped me finally take the plunge.

Playstation Vue FTW

There was always a video game system in my house growing up.  It all started with the original 8-bit Nintendo, then Super Nintendo, Nintendo 64, Gamecube and then the Playstations.

I currently have a Playstation 3 but I honestly haven’t used it to play a video game in years.  Being a full time doctor, husband and father will do that to you.  And I wouldn’t have it any other way.

But the PS3 is still being extensively used to watch shows on Netflix and Amazon Video.  We watch almost all of our TV shows on these two services.

And now the PS3 being used a lot more because my 3 year old son ended up downloading a free trial of Playstation Vue.  And it changed everything.

I heard of Vue from ads here and there but never really thought anything of it.  But as I dug into it more I realized it will solve my biggest hurdle in cutting cable: watching sports.  I particularly love watching NFL football and NBA basketball.  The main channels I watched on cable were ESPN, ESPN2, NFL Network, TNT, TBS and local channels for live games.

And guess what.  Playstation Vue has them all!  For $35/month I could get all these channels along with a bunch of other great ones (Comedy Central, CNN and MSNBC to name a few) streaming on my PS3.

And that’s exactly what I did.  This made cutting cable really easy and a no brainer.  Even with the Playstation Vue monthly price I’m saving a healthy amount per month from what I was paying before.  And I don’t have to pay for the DVR and the laundry list of TV related taxes.

Not Missing Anything

Between Netflix, Amazon Video and Playstation Vue, we don’t miss our cable package at all.  We get more shows than we could ever watch with Netflix and Amazon, and I get my fill of sports with the Playstation Vue options.

Since the channels are streaming there is the occasional hiccup like with any Internet connection, but that is a once a week occurrence.  The TV watching experience is almost identical as with a traditional cable package, and it will only get better as Internet reliability improves over time.

And because of certain broadcast rules, some channels are not allowed to show commercials during breaks.  This is actually an added blessing since we won’t be influenced by a barrage of ads and it actually forces us to talk to each other during commercial breaks.

In short, we don’t miss our former cable package in the least.

Actual Savings

$150.43= Old monthly cable bill (includes TV, Internet, home phone, DVR rental and various random taxes)

$72.59= New monthly cable bill (includes faster Internet, home phone and no random taxes)

$34.99= Monthly payment for Playstation Vue

$42.85= Money saved per month.  And our lives are actually a little better because of the faster internet and fewer commercials.

I could say I can’t believe we waited this long to cut the cord, but there were not many good options available to watch sports until recently.

But with services like Playstation Vue, Sling TV and even a good old fashioned antenna depending on where you live, you can still get your favorite channels and then some.

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Life Insurance Brings Peace of Mind

“With all of these financial and insurance considerations, one tool that gets lost in the shuffle is life insurance.  This is a shame since a good life insurance plan will provide peace of mind for you and your family, while being a financial cornerstone for your loved ones.”

Read the rest of my post about the importance of life insurance over at FineTunedFinances.  Life insurance is so easy to sign up for nowadays and is very cheap compared to most other types of insurance.  Checking your rate is really a no brainer.

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Digit: Save Money Easily and Automatically

An emoticon I can get behind

An emoticon I can get behind

This post may contain affiliate links

America has a savings problem.  No, not the annoying habit of trying to save every country from themselves.  That’s for another blog.  The savings problem is that Americans are just not saving enough money.

The personal savings rate in 2015 was found to be 4.8%.  This rate includes retirement account savings, such as a 401(k).  Saving 5% into your 401(k)  alone is not going to get most people anywhere close to a comfortable retirement, so this is a scary stat.

Another scary number?  62% of Americans have less than $1,000 in their savings account.  This means that many many people in this country are not able to fork over $1,000 in case of an emergency.  They will have to resort to credit cards or loans to make up the difference.  And more debt is not the answer.

The answer: make saving automatic.

If you’re eager to start saving automatically sign up here!

Enter Technology

Automatic savings has been the backbone of my finances.  Deductions from my paycheck into my 401(k).  Monthly transfers from my checking account into my savings account.  Direct debit monthly student loan payments, which also gives me a slight interest rate deduction.

The beauty of automating your finances is that the money goes where it needs to go.  I never have to worry about it being spent or disappearing into the financial ether.

But if you have read any of my posts, especially some of the earlier gems like this one, you’ll know I’m not perfect.  Some months may have different cash flow needs than usual, and as a result I have money just sitting in my checking account doing absolutely nothing.

This is where Digit has made a big impact in my life.  I first heard about it while listening to an interview on the awesome Stacking Benjamins podcast a while back.  I tried it and fell in love.

The basic idea behind Digit is that once you sign up and link your checking account, Digit uses some fancy algorithm to analyze your transactions.  After a couple of days, it is able to determine how much you can safely save and sends that amount to your Digit account, which is FDIC insured.

If you happen to be spending a lot that month, Digit will adjust accordingly and not take as much money out of your checking.  When you have some extra money sitting around, then they will save a little bit more.  If your account happens to overdraw because of Digit, which is exceedingly rare, they will reimburse you for the fee.

Easy to Use

Accessing the money is easy.  You can just use their new mobile app to withdraw funds back into your regular checking account, or their traditional way of communicating through text messaging.  I use the texting currently because they update you periodically on how much you have in your Digit account and in your checking account.  They also send funny pictures once in a while to keep things lively.

Once a month I will transfer the money from Digit into my emergency savings account.  This gives me a little savings boost each month which I otherwise didn’t have.

It’s a nearly pain free way to save.  It’s not useful for everyone, like those people who keep track of every single cent in their account (you know, THOSE people).

But it is a great service for those who have trouble saving anything, or those who would like to be a little more efficient with their savings, like me.

It’s risk free to try.  If you’re not happy with it, you can just withdraw your money and close the account on their website.

Signing up is really easy:

  • Join by clicking here and enter some demographic information
  • Link your primary checking account
  • Give Digit a few days to analyze your spending and enjoy the newfound savings!
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Investing Lessons Learned from Fantasy Football

 

football-stock

Fantasy football is one of the most polarizing things on Earth.  One on end you have people who are deeply embedded in the culture.  They have been playing in multiple leagues for years and have parties commemorating the start and end of the seasons.  It’s a way of life.

On the other end, you have those who think that those who participate in fantasy football are delusional and wish they were real athletes.  I’m somewhere in the middle, as I like playing but don’t do it with a lot of fanfare.  And I do wish I was a real athlete.

For those readers who are uninitiated in the ways of fantasy football, it is a game for football enthusiasts in which you select a team from the pool of current NFL players.  Based on how well the players do throughout the season, the team with the most points at the end of the season is the winner.  You have to keep track of player performance, injuries and other  league events to make sure you are fielding the best team possible.

This is usually played online nowadays and some league winners get cash prizes while others just get bragging rights.  It’s all in good fun, but there are some hurt egos along the way.

I bring this up because football season has just started, and I have noticed a bunch of similarities between fantasy football and investing.  In essence, they are very similar because you have to actively track how your players (investments) are performing and make adjustments along the way to win the league (reach your investment goals).

Here are some other startling similarities between fantasy football and investing:

Past Performance Does Not Predict Future Results

This is an SEC mandated statement that all mutual fund companies must put in their ads.  It’s a warning to investors that just because a company has done well in the past, it does not mean they will do well in the future.  If investors actually heeded this advice instead of listening to the latest stock tip, then we would have a lot more wealthy people in this country.

After looking at the top fantasy players from year to year, I realized fantasy football leagues should also mandate this statement.  Besides the many off the field issues that can affect a players performance (such as injuries, suspension, personal problems etc), even the top players in the league can have unpredictable results.

If a player has a tougher than normal schedule for the year or just a handful of poor performances, it can affect their results for the entire season.  Just picking the best performing players from the previous year is not a terrible strategy, but it probably won’t get you very far.  Many of those players may not do well this year and you will miss out on those players that have drastically improved their play.

Lesson Learned:  Don’t pick investments based on how they performed last year.  And don’t pick players thinking they will replicate their production from last year.  Look at the whole picture.

Everyone Has an Opinion

I enjoy watching Sportscenter and listening to NFL podcasts, so I hear lots of different views about who the best players are.  Everyone has an opinion on who they feel will be “dud” or “stud” in fantasy football.  And if you listen to more than one person, you will probably get more than one answer.

All sports writers and pontificators believe they “know” who will play great and who won’t.  But as history shows, no one really knows.  If they do get it right, it’s mainly because of the broken clock theory.  Even a clock that doesn’t work is right twice a day.

Sure, there are players like Tom Brady, Antonio Brown and my man Odell Beckham who will likely light up the scoreboard year after year.  But it’s extremely difficult to spot those players that come out of nowhere or to guess who will have a big drop off this season.

It’s difficult, but people will still try to guess.  And the same goes for investing.

Watch MSNBC or any other financial reality show for long enough and you will think the entire stock market is going through the roof.  Or that you should stockpile gold bars since the world is coming to an end.  Or that the latest election will produce disastrous results in the market.  Depends on what will drive ratings that day.

There will be so many passionate opinions that the average person won’t know what to think.  Mutual fund managers will urge you to sign up for their funds, but that may or may not be the right strategy for you.

Do your own research depending on your risk tolerance and investing timeline.  There is no one size fits all answer and that applies to fantasy football and investing.

Lesson Learned:  Tune out the noise.  Everyone thinks they found the winners but most of the time your guess is just as good as theirs.

Don’t Follow the Herd

Every fantasy league has “that guy” who is always wheeling and dealing.  His transaction history is super long and he’s always looking to trade away his players.  He loves being plugged into the latest news and is scouring the waiver wire to find the next big thing.

“That guy” usually doesn’t win the league.  More than likely the owner who picks solid and dependable players who perform consistently will win the league.  There is definitely a little luck involved to do well in fantasy football.  But picking solid players on great teams and staying the course is usually the way to go.

You will have the random backup wide receiver who has a great game and then is picked up that same hour.  He will be the “hot” player that everyone is clamoring after.  But then he might not do much the rest of the season.  All the while you’re consistent player will be racking up points riding the bench.

This lemming mentality plays itself out in the investing world as well.  As soon as some type of international incident happens, the knee jerk reaction is to sell sell sell!  So many people sell that the market takes a sharp dip, and this causes even more people to panic and sell.

Nothing good can come from following the investing herd.  Nearly all hugely successful investors got their money by not following the herd at the right time.  As Warren Buffet (one of those hugely successful investors) says, “Be fearful when others are greedy and greedy when others are fearful.”

Lesson learned:  Don’t pick up a player just because everyone is talking about him.  And don’t invest in a stock just because it is the latest “hot” pick.  Do your research.  There’s a reason the herd doesn’t get great returns.

I love football and I love investing, so I’m probably going to find similarities between them.  But the similarities between fantasy football and investing are so clear.  Now someone should do a study comparing fantasy football performance with investment returns!

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